Israel assassinated the most senior commander of the terror group Islamic Jihad in Gaza yesterday in an attack that also killed a woman bystander and her five-year-old son. Mohammed Dadouh, 40, who Israel says has been behind a series of rocket attacks, died instantly when a missile hit his car.

The killing of Dadouh is certain to further exacerbate the anarchic security situation in Gaza, already tense following an attempt on the life of the Palestinian intelligence chief - allegedly by Hamas - which prompted gun battles between rival factions.

Tareq Abu Rajab, close to moderate Palestinian President Mahmoud Abbas, was seriously wounded in a bomb blast in a lift at his Gaza headquarters which killed one of his aides. It was the culmination of an increasingly nervous stand-off between the Hamas-controlled parliament and the President, in which both sides have deployed militias in the streets.

Later the family of Rajab's aide fought a gun battle with Hamas supporters inside the Al Deira hotel on Gaza's seafront, scattering journalists who use it as their base and injuring several Palestinians inside the hotel.

Earlier in the week, Hamas defied Abbas by suddenly sending thousands of armed fighters out on patrol, saying they were needed to maintain security. The Fatah militias that back the President mimicked this with a deployment of their own fighters, turning every corner of Gaza City into a heavily armed checkpoint and resulting in nightly clashes.

Last Thursday, officials loyal to Abbas detained Hamas spokesman Sami Abu Zuhri and seized more than €600,000 (£408,000) he was allegedly importing illegally from Egypt. But it is the attack on Rajab that has brought the two sides to brink of open conflict. Fatah and Palestine Liberation Organisation officials immediately put out statements suggesting Hamas was responsible.

A police official said: 'No matter who did it, people will blame Hamas and now there will be war, at least for tonight.'

The scene at Shifa Hospital, where the wounded from the lift bomb were taken before the four most seriously hurt - including Rajab - were moved to Israeli hospitals, bordered on anarchy. Family members and scores of gunmen from Fatah-related security organisations fired weapons in the air and brandished rocket launchers. 'We don't care who you are,' they screamed at journalists who rushed to the scene: 'Leave or you will be shot.'

Reports put the wounded from such incidents at about a dozen but this could not be verified.